280 F.3d 492 (5th Cir. 2002), 00-30165, DeMette v Falcon Drilling Co.

Docket Nº:00-30165
Citation:280 F.3d 492
Party Name:KERMIT DEMETTE, Plaintiff, v. FALCON DRILLING COMPANY, INC.; ET AL., Defendants. R & B FALCON DRILLING USA, INC., Defendant-Third Party Plaintiff-Appellee, v. FRANK'S CASING CREW & RENTAL TOOLS, INC., Third Party Defendant-Appellant.
Case Date:January 16, 2002
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 492

280 F.3d 492 (5th Cir. 2002)

KERMIT DEMETTE, Plaintiff,

v.

FALCON DRILLING COMPANY, INC.; ET AL., Defendants.

R & B FALCON DRILLING USA, INC., Defendant-Third Party Plaintiff-Appellee,

v.

FRANK'S CASING CREW & RENTAL TOOLS, INC., Third Party Defendant-Appellant.

No. 00-30165

United States Court of Appeals, Fifth Circuit

January 16, 2002

January 31, 2002

Page 493

[Copyrighted Material Omitted]

Page 494

Appeal from the United States District Court for the Eastern District of Louisiana

Before HIGGINBOTHAM and DeMOSS, Circuit Judges, and FISH,1 District Judge.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Without prejudice to the Petition for Rehearing En Banc of Third Party Defendant-Appellant Franks Casing Crew & Rental Tools, Inc., we substitute the revised opinions that follow in place of the prior opinions, reported at Demette v. Falcon Drilling Company, Inc., 253 F.3d 840 (5th Cir. 2001). The parties may file on or before January 30, 2002 any supplemental briefs in support of or opposition to the petition for rehearing en banc in light of these revised opinions.

Appellee R & B Falcon Drilling USA, Inc. sued appellant Frank's Casing & Crew Rental Tools, Inc. for indemnity when a Frank's employee sued Falcon under the Longshore and Harbor Workers' Compensation Act2 for injury sustained while working on a Falcon jack-up rig in the Gulf of Mexico. Frank's argued that the indemnity agreement was voided by LHWCA or by Louisiana law. The district court held that the indemnity agreement was valid.

Determining the validity of the indemnity agreement requires a foray into the federal statutes defining the law applicable to offshore drilling on jack-up rigs. We first consider the application of the Outer Continental Shelf Lands Act ("OCSLA")3 and then construe the LHWCA. We conclude that the OCSLA applies to a rig jacked-up over the outer continental shelf; that state law does not apply to this case by operation of the OCSLA, but the LHWCA does; and that the LHWCA does not invalidate the indemnity agreement. We affirm.

I

Frank's Casing & Crew Rental Tools, Inc. and R & B Falcon Drilling USA, Inc. are both contractors with Union Oil Company of California for Unocal's offshore drilling operations. Frank's provides casing services. "Casing" is an activity Page 495

performed during the drilling for oil, whether onshore or offshore; it involves the "welding together and hammering of pipe into the subsurface of the earth to create a permanent construction."4

Frank's and Unocal signed a "Services and Drilling Master Contract." Under the Master Contract, Frank's provided casing services to Unocal at offshore drilling sites. Under the Master Contract, Unocal agreed to defend and indemnify Frank's against any liabilities Frank's owes to Unocal, and Frank's agreed to defend and indemnify Unocal and all of its contractors and subcontractors against liabilities they may owe to Frank's. Falcon was a contractor of Unocal.

Falcon provides movable rigs from which casing crews drill offshore wells. Falcon has an "Offshore Daywork Drilling Contract" with Unocal. This contract provided Unocal with access to all of Falcon's vessels for offshore drilling. Falcon provided Unocal the Fal-Rig #85, a jack-up drilling rig. A jack-up drilling rig is a floating rig with legs that can be lowered into the seabed. Once the legs are secured in the seabed, the rig can be "jacked-up" out of the water to create a drilling platform. The process can be reversed, and a jack-up rig can be towed to new sites.5

Pursuant to the Master Contract between Frank's and Unocal, plaintiff Kermit Demette, an employee of Frank's, worked aboard the Fal-Rig #85. Demette was injured while performing casing work as a welder on the Fal-Rig #85. He was part of a "hammer job," which involves a casing crew welding together sections of pipe end-to-end as the pipe is driven into the seabed by a large hammer. While Demette was working at the base of the derrick where the pipe was being driven, a metal retaining ring used to secure hoses fell from the derrick, striking him on the head. At the time of Demette's injury, the Fal-Rig #85 was jacked up. Its legs rested on the outer continental shelf of the United States beyond the territorial waters of Louisiana.6

Demette sued Falcon for his injuries. Falcon, pursuant to the Offshore Daywork Drilling Contract, filed a third-party complaint against Unocal for defense and indemnity. Unocal voluntarily assumed the defense of Falcon. Falcon then filed a third-party complaint against Frank's, seeking defense and indemnity pursuant to the Master Contract.

The district court granted summary judgment to Falcon on the issues of whether Frank's owed defense and indemnity to Falcon. Frank's agreed to fund a settlement with Demette and to pay Falcon's defense costs, but made a full reservation of appeal rights. A consent judgment was entered pursuant to this agreement.

Frank's appeals the summary judgment ruling on indemnity and defense.

II

The Outer Continental Shelf Lands Act7 provides comprehensive choice-of-law rules and federal regulation to a wide range of activity occurring beyond the territorial waters of the states on the outer continental shelf of the United States. Relevant to Page 496

this case, it applies federal law to certain structures and devices on the OCS, incorporates state law into federal law on the OCS, and applies the LHWCA to certain injuries sustained by persons working on the OCS.

In this case, the parties dispute whether Louisiana state law governs the Master Contract and whether the OCSLA makes the Longshore and Harbor Workers' Compensation Act8 applicable to Demette's injuries. First, we must determine whether the injury occurred on an OCSLA situs; if so, we then have two inquiries: we must determine whether OCSLA makes state law applicable; and we must determine if the injured party's status makes the LHWCA applicable under OCSLA. We begin with a review of the three OCSLA inquiries we must make in this case.

A. Section 1333(a)(1): Situs Test

Section 1333(a)(1) describes the reach of the OCSLA and applies federal law within this scope. It states that the laws and jurisdiction of the United States extend

to the subsoil and seabed of the [OCS] and to all artificial islands, and all installations and other devices permanently or temporarily attached to the seabed, which may be erected thereon for the purpose of exporing [sic] for, developing, or producing resources therefrom, or any such installation or other device (other than a ship or vessel) for the purpose of transporting such resources, to the same extent as if the [OCS] were an area of exclusive Federal jurisdiction located within a state.9

The Supreme Court and the Fifth Circuit have held that this section creates a "situs" requirement for the application of other sections of the OCSLA, including sections 1333(a)(2) and 1333(b).10 Neither the Supreme Court nor this court has parsed the precise language of the statute to specify the exact contours of the situs test it establishes.11 We are called upon to do so today.

We rely on the text of the statute. A close inspection of section 1333(a)(1) reveals that it applies to two primary sets of subjects: "to the subsoil and seabed of the [OCS]"; and "to all artificial islands, and all installations and other devices permanently or temporarily attached to the seabed." This latter category is further divided into two categories: those artificial islands, installations, or devices "erected" on the OCS "for the purpose of exploring for, developing, or producing resources" from the OCS, and those "other than a ship or vessel" whose purpose is "transporting such resources."12

Page 497

Thus, the OCSLA draws important distinctions between the two categories of artificial islands, installations, and other devices. Each category is defined by the purpose of the device--the former, extraction of resources; the latter, transportation of resources. The former also includes the phrase, "which may be erected [on the OCS]," while the latter does not. Conversely, the latter contains the phrase, "other than a ship or vessel," while the former does not.

We incorporate these distinctions into the following rule:

The OCSLA applies to all of the following locations:

(1) the subsoil and seabed of the OCS;

(2) any artificial island, installation, or other device if

(a) it is permanently or temporarily attached to the seabed of the OCS, and

(b) it has been erected on the seabed of the OCS, and

(c) its presence on the OCS is to explore for, develop, or produce resources from the OCS;

(3) any artificial island, installation, or other device if

(a) it is permanently or temporarily attached to the seabed of the OCS, and

(b) it is not a ship or vessel, and

(c) its presence on the OCS is to transport resources from the OCS.

B. Section 1333(a)(2): Incorporation of State Law

If the situs test is met, section 1333(a)(2) provides that "[t]o the extent that they are applicable and not inconsistent with this subchapter or with other Federal laws . . . the civil and criminal laws of each adjacent State . . . are hereby declared to be the law of the United States [on OCS situses as defined by section 1333(a)(1)]." Sections 1333(a)(1) and 1333(a)(2) together provide a rule for the incorporation of state law as surrogate federal law governing claims arising out of activity on the OCS. This court has articulated the rule in a three-part test announced in Union Texas Petroleum Corp. v. PLT Engineering ("PLT"):13

[For state law to govern,] (1) The controversy must arise...

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